I should point out that it's not causing a major issue. I can just remove the tick from the relevant folder and syncback won't waste time trying to copy it. But it just struck me as odd that something which should be as simple as a "refresh" isn't working.

I just tested your scenario on my end with a SyncBackFree V8.5.97.0 and have no issues with the Clean Up button. SBFree was able to detect the detect the deleted folder and displays it in pink, and hitting the Clean Up button removes it.

Which version of SBFree are you using? If using latest, then maybe you may be looking at the wrong path? (that is, you are looking at one path in SBFree that shows this folder, but you removed the same folder in another path which caused some confusion, and the same folder in the path shown in SBFree is still there, maybe?)